Are asset bubbles on the horizon for the UAE?

If any proof were needed of the importance of the UAE to Standard Chartered, then you need look no further than the bank’s gleaming new headquarters in Emaar Square. Set to be fully completed by the end of the year, the $140m purpose-built tower is something of a statement of intent in a market that has seen other international lenders falter in recent months.

HSBC has cut lending to small businesses in the country, as well as slicing out retail and wealth management services in a number of Middle Eastern countries as part of a strategic global review. Last week, Barclays announced it would be selling its UAE retail business, and has been cutting staff. Lloyds sold its small operations in the country to HSBC last year, and on the investment banking side a number of global finance houses have retrenched as big local players start to take a larger slice of the pie.

Buoyed by its focus on emerging markets in Asia and the Middle East — where it makes roughly four fifths of its earnings — Standard Chartered has steered a relatively smooth path through the credit crunch.

“Globally, we’re in the right markets, with the right strategy, on which we’re executing,” says Jonathan Morris, chief executive of the bank’s UAE operations. “Standard Chartered wasn’t in the US, so we weren’t involved in the sub-prime crisis, and we’re not a major bank in Europe, so we weren’t involved in that.

“We’re in those parts of the world that are growing faster than others, and we have a long-term commitment to those markets, so perhaps for some of the other banks it’s a more peripheral business.”

That said, the story in recent months has been of weakening emerging markets growth, as the US looks to ease back on its $85bn-a-month bond-buying programme. India has been hit worst, with the rupee diving to unprecedented depths against the greenback. Surely this is a concern for Standard Chartered? Not so, says Morris.

“We’re very comfortable with our exposure in places like India and so on,” he says. “But it’s relative — China, India and all our core markets are continuing to grow. They’re not growing perhaps as fast as they were a few years ago but they are still continuing to grow, and I certainly I would far rather be in the faster-growing markets of Asia, Africa and the Middle East as a banker today, than being a banker in Europe.”

Last month, the bank reported a four percent rise in operating income to $9.75bn, although net profit slumped by 24 percent to $2.13bn, partly due to a goodwill impairment of $1bn in South Korea. Morris describes the global performance as “resilient, against what are increasingly difficult economic conditions”. In the UAE, which is the bank’s fifth-largest market, Standard Chartered reported pre-tax profits rising by 55 percent, helped by a positive credit environment.

“What we’re seeing in the UAE is increased liquidity in the market, so our volumes are growing extremely nicely — our trade and foreign exchange, our core commercial banking products, were up in the high teens,” says Morris. “But because of margin compression, caused by increased liquidity, we were broadly standing still from an income perspective, so, if you like, we were having to run harder to stand still.”